The Prime Minister of Australia
Canberra ACT 2600
Dear Mr. Turnbull
Lack of economic growth is the major issue facing Australia. Above average growth is needed to restore government revenues, ease the pain of necessary budget repair and drive prosperity.
The main problem is risk aversion. The many company decision-makers are being told by their shareholders not to invest in growth, but to increase dividend payments and return cash to their owners. They need the extra income to maintain their standard of living when interest rates are historically low. At such low rates an avalanche of investment and high growth normally would be expected. As it is, both non-mining and mining investment are declining resulting in lower growth.
Usually in this circumstance, the Government as a sole decision-maker would increase its investment to offset the deficiency of private investment. At present, it is constrained by running a deficit instead of a surplus during a period of economic growth. It is constrained further by undesirably high and rising government debt. These put a clamp on extra spending to stimulate the economy.
The solution is to encourage confidence, optimism and incentive, as is being done. Many green shoots are fertilised, some shrubs watered and a few large trees raised. However, there is a great oak, a behemoth of a visionary, practical, profitable, concrete project that the Government should instigate as well which would under-write Australia’s future growth, prosperity and liveability.
This large infrastructure project need not be financed by debt, but by government guarantee of private finance. It would inject some $200 billion of new investment into the eastern States creating many thousands of jobs and kick-starting above average growth. If the Government overcomes its risk aversion, it would lead to more growth, higher interest rates, less company risk aversion and even greater growth.
Guarantees are contingent liabilities and do not become debt unless exercised. The project would be viable and very profitable at usual interest rates. Government, in cooperation with business and unions would do everything possible to fast-track a successful outcome so that the guarantee would not be exercised. After the project is operational, the guarantee would be dissolved and Super Funds would refinance it long term.
This infrastructure project would be private enterprise because though government could probably raise $200 billion debt justified by the really good return without losing its AAA credit rating, the risk of large time and cost over-runs on such a big government project would be unacceptable.
The infrastructure project that fulfils the criteria is the VFT 2 Project for High Speed Rail (HSR) and dedicated Fast Freight Rail (FFR). They would be built side by side, at the same time, between Melbourne, Sydney and Brisbane. The Project would be very profitable and have a high return. There would be outstanding economic advantages from cost/benefit and from greater competition.
HSR would redistribute Australia’s doubling of population in coming decades. It would accommodate some 2 million of the potentially 4 million more people in both Sydney and Melbourne (and similarly Brisbane) in new cities in the regions up to 300km away but within 60 minutes commuting time to CBDs. This cannot be done by road or air.
HSR would house around half a million people in each capital city in low rise dwellings above HSR and suburban tracks in inner-city suburbs instead of outer-suburban, ill serviced areas. New residents would be within walking distance of stations with easy access to jobs by suburban rail which would be upgraded by the VFT 2 Project.
HSR would reduce congestion which is increasing exponentially. It would maintain liveability of cities as population increases. It would do so by housing more people in the inner-city and by housing many people in new, lower cost regional cities with ready access to CBDs and broadband communications.
More and larger, connected and compact, smart regional cities would increase the Australian propensity to innovate. More innovation in America no doubt comes from the aggregation of the many small cities than the few large.
FFR would halve the freight delivery time and cost between major cities. It would end the industrial isolation of the cities caused by extremely high road freight cost. There would be huge direct and indirect productivity gains. Competition would be increased and greater international competitiveness underwritten, which stimulate innovation and create new jobs.
Driverless fast freight trains each carrying the equivalent of 150 semi-trailers at an average speed of 125 km/hour would compete with interstate road freight. Given the construction lead time, many of the aging interstate truck-driver work-force may retire. Many others would be employed in more local city movements to and from rail freight terminals.
Rail is much more energy efficient than road and air. The VFT 2 would cut greenhouse gases from trucks and planes. It would be a significant contributor to achieving the Government’s co₂ reduction targets. The Project would be sensitive to the environment and minimise damage in achieving its large overall environmental benefits.
There is a great advantage of the new approach proposed, that is, to place HSR and adjacent suburban rail in trenches for 30 km into and out of major cities with housing above. It would create altogether 21 square kilometres of new inner-city ‘land’ in the major cities. This would be immensely valuable. The land and housing would mean very significant value capture for the VFT 2 Project. Similarly, value capture on property for new cities and around stations would reduce the capital cost further.
The net investment after allowing for value capture may be as little as $30 billion, which would give a very high direct return on a remarkably valuable Project. It would give the biggest single increase in national productivity and competitiveness through application of new technology to reduction of high transport costs. It would create openings for many other business opportunities and stimulate innovation and entrepreneurship. It would be true transport reform.
The VFT 2 Project would play a major role in overcoming the next recession. It would be advisable to have it ‘shovel ready’ as soon as possible.
The first action of the Federal Government would be to announce a government guarantee for private finance of the VFT 2 Consortium HSR and FFR Project. There would be bipartisan, business, union and public support.
The Government would bring together in the national interest a group of major companies with the necessary capabilities in a private VFT 2 Consortium, like the original VFT consortium in the mid1980’s.It would include airlines and freight companies.
The Consortium would immediately undertake a private enterprise feasibility study to examine the viability of the Project. It is likely to confirm its financial viability and bankability with substantial economic benefits and job creation. Its adoption would be a major stimulant to economic growth. The risk of government guarantee would be more than rewarded by greater growth, budget repair, improved productivity, increased entrepreneurship, more competition locally and internationally, and higher employment.
Confidence is central to civilisation according to Kenneth Clark. Clearly for confidence to be maintained, it must be demonstrated by serious leading initiatives like the VFT2 Project. Confident action is central to continuing prosperity.
Peter J Knight B. Com (Hons) (Melb), MBA (Melb)
Chairman, The VFT 2 Project
Recently Founder, Chairman and CEO, The CEO Circle Pty Ltd
Former BHP Member of the Advisory Board, the original VFT Consortium
Former Manager Corporate Planning, BHP H.O.
Former Economist, RBA